Sunday, August 09, 2009

SUMMARY:- Jobs report triggers the market rally even if it was leaked.- Not all stocks participate in the Friday run, but that can be a good thing.- Hours worked per week head back in the right direction.- Now we see if the market holds the move and gives us new upside buys.

Now we know why the President was upbeat Thursday evening.

Thursday we should have known something was up. The President came out and let slip that the jobs picture was looking better than it has in the last six months with the losses at half of what they had been. GS then lowered its expectations down to a 250 thousand job-loss level, and, sure enough, Friday morning it comes out at -247K. Obviously someone knew what was going on and the President let it out early. GS knew through its connections, so it was making its call as well.

Is it a big deal? It might smell a bit fishy, but it happened back in President Clinton's days when Labor Secretary Reich let the jobless numbers slip after he had been in office for just three months. It is no big deal and it did not affect anything. The die was cast, the market was ready to move on the number, and it did. It triggered a nice move in all of the consumer discretionary areas, along with housing and financials.

There was not equal participation across the board, which was an interesting feature of the day. Energy, commodities, chips, and techs were all laggards; indeed the semiconductors were actually down on the session. Does this mean the rally is doomed to fail? After all, SP500 just broke over the 1,006 November 2008 peak, moving up to 1,018 on the high, though it closed off at around 1,008. It could mean that the rally is overbought and will fail. It also could mean that these stocks were early leaders and they are just ready to fall back. They were ready to fall back but they have made good tests and could make a strong move higher - I have no complaints with that. I cannot say anything bad about a plethora of good stocks in good positions, some breaking to new highs while others are testing back to near support and ready to move to new highs. I think that is what is called a "rich person's woes," where your troubles are created by your wealth.

The market has had a tremendous run and now many are worried it has gone too far and has to come back. At the same time, they do not want to be out of the market. Thus far, the market has punished you if you have not been in it, which is why I have been letting a lot of positions ride higher even though we have been a little skeptical ourselves. Not only are we letting positions ride higher, we have been buying into it. I said we probably would not do any buying on Friday and we did not because you do not want to buy when the good news hits and the market gaps higher. We could have; there were some positions we could get into, but why rush? If the market holds these gains, they will be ready next week and we will get an opportunity. They will test back these moves and the other stocks in the other sectors that held back will move higher. There was no rush to get in, and indeed what we did was take some gain off of the table. We did not take a whole lot because we have already banked quite a bit of gain on this move, but we did take some and are letting the other positions run. Again, not a bad situation to be in, particularly when there are other stocks in other leadership sectors setting up to break higher once more.

TECHNICALINTRADAY.

Intraday there was the gap higher, a little test after that and then a run higher immediately into lunch and on into mid-afternoon. The market gave back some gains late in the day that took the SP500 from 1,018 down to 1,010 on the close. That still keeps it above that 1,006 and a breakout.

INTERNALS.

Internals were strong. The breadth was nice and the volume was good yet again, moving up and above average on both the NYSE and NASDAQ. On NYSE we have seen six out of seven days of upside above-average volume, and on the other days it was average volume, so we are seeing very good trade here indicating a lot of buying. That money is being dragged into market because mutual funds cannot afford to miss this rally, particularly with the SP500 breaking over that November 2008 peak. There is some very good trade as those funds come running into the market.

CHARTS.

SP500 was up 1.34% on the session with that very important move over that November peak. It cleared it by roughly 12 points and then tested back some. NASDAQ had no breakout, and there was nothing special about this move. Yes, it was up 1.37% on the day, but that did not take it past its recent highs of the past week. NASDAQ is still moving laterally and trying to consolidate. There I go again, talking about consolidations and leadership. Will this be the catalyst that sends the market higher again, or is it going to be the catalyst that sends it down if it cannot rally and pulls the rest of the market back down - including SP500 and its fresh breakout?

Right now, the indices are all in strong uptrends. There is nothing to suggest that there will be a dump lower. You could say basically the same thing with the SOX, which was down 0.44% on the session. It fell on an upside session, but it also is testing its uptrend line as well as the 18 day EMA. Those are near support levels and even though the chips have been struggling as of late, the overall chip sector still is leadership. It is still in an uptrend and still making a very nice, ordinary test in what would be a continuing upside move.

LEADERSHIP.

Friday was clearly consumer discretionary - they were up, along with financials and home builders. Anything related to the consumer or an advancing economy was up. That was not the case with all the commodities which you would expect would be moving up if economics were moving as well. The reason is there was issue with the dollar. It surged on this news. The dollar had moved to 1.44 Euros as recently as Wednesday. Friday it closed at 1.41 Euros. Big moves, strong dollar, lower commodities prices. Indeed that drove oil prices down which closed at $70.58, down $1.36 per barrel. Bond yields surged as investors moved out of bonds. There is no need to be in the safety of bonds if the economy is recovering. The 2 year ran up to 1.30% - its highest thus far on the move. The 10 year moved up to 3.85% which was not its highest on the move, but strong nonetheless (The 10 year was up near 4% just over a month back). The curve has flattened a bit as the short end has moved up faster than the long end. Nevertheless, the curve is still a positive curve. Bonds are selling, and yields are rising in anticipation of more demand for currency down the road if the economy continues recovering.

The other aspect that we have to worry about is inflation. We still have the stimulus in place, and we still have world central banks printing money right and left. That is also a reason that you see interest rates rising, and the reason I think we will still see the commodities and related stocks rise as well. They act not only as a good investment vehicle if the world economies are recovering, but also act as a hedge against inflation given the fact that world economies are improving on the backs of trillions upon trillions of dollars (and whatever other type of currency you can think of) circling around the world.

THE ECONOMY

Hours worked shows the real potential for improvement.

Again, the jobs report was -247K, which beat expectations of -350K. That was the smallest amount of losses since August 2008. That puts it in perspective. We have been under a serious job loss cycle in the United States; indeed since the recession started, 6.7M jobs have been lost, but (dare I say it?) there are positive green shoots. There were revisions to the prior months May and June. It is always a good thing when positive revisions come back into the picture. Economists overshoot - they are human, they are negative - and then they continue to overshoot even as things start to turn. That is a very good juxtaposition - it is kind of a bright line that you can look for. When revisions start coming in better while the experts are still saying things will get worse, that is good because it shows there is a fundamental shift happening. Emotions are in the way, clouding their judgment. When I see revisions, I always take heart at that point.

What about the unemployment rate? It was down 9.4% from 9.5%, and expectations were at 9.7% on the way up to 10%. What happened was the Labor Department reports that 800K potential workers gave up. They saw things improving, they came into the market, and when things got worse they gave up and left the market. We may see this cycle again when they see things looking better - less job losses, lower unemployment rate - we may see them come back into the market next month. What does that mean? That means the unemployment rate will go up. 9.4% - this stated the unemployment rate. It may have been by 800K, it may have been by more, but what that translates into if you add those 800K back in who just gave up looking for work, you have a 9.8%-9.9% unemployment rate. That is a pretty substantial gain, and we could see that next month as these people who gave up take heart and come back into the market, but then still cannot find a job at this point.

It is not all roses, obviously. These are not great numbers and we are still losing way too many jobs, but it is starting to turn. As I noted a month ago, when the job picture gets as bad as it is, when you start to see these kinds of turns it actually can be somewhat of a coincident or even leading indicator.

Nonetheless, there is one part of the report that I really focused in on: the average hours worked. That went up. It was down in June to 33.0, and it was up to 33.1 in July - that is very important. You have to start working more hours before there can be more jobs. Employers have to get more out of their employees, getting them working to maximum capacity were they cannot do any more or else they will lose business. Only then do you have new hires. Thus this increase in hours is a positive. How much of a positive? It is only one month. We have to see more of this and the number has to get better. Historically, you are talking a 34 hour per week range before real improvement can be seen (or basically any improvement) in the employment picture as far as new jobs coming on versus just losing fewer jobs. We still have a ways to go, and that is a bit disappointing with respect to where we are in the economic cycle.

In summary, things are getting better. We are no longer at that pit that we were in last fall and earlier this year when everyone was trying to gauge just how bad things were, but we are an awfully long way from getting recovery. If we can get some good spirit in there and get people who actually feel good, maybe we can get money invested in the economy, but frankly it will take good feelings right now to give people the reason to spend money when there is really no reason to. The stimulus package is not quite cutting it to get people ready to spend and invest in new businesses in the US.

THE MARKET

MARKET SENTIMENT

VIX: 24.76; -0.91VXN: 25.02; -1.34VXO: 24.65; -0.79

Put/Call Ratio (CBOE): 0.73; -0.19

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 42.2% versus 36.7%. More sharp rebounding as the market continues to improve. After falling to 35.6% the market bounce caught up with sentiment. Hit a high of 47.7% mid-June on the run from the March lows. Steady rise from 36.0% in late April. Barely over the 35% threshold, below which is considered bullish. Of course it will jump after this past week. Has to get up to the 60% to 65% level to be bearish. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.

Bears: 31.1% versus 35.6%. Big drop after holding for two weeks at 35.6%. Surging from from 30.3% in early July and 23.3% in mid-June. Still well off the 37.2% and the 37.1% in mid-April as the rally continued higher. Cracking above the 35% threshold considered bullish. Still off the high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

NASDAQ

Stats: +27.09 points (+1.37%) to close at 2000.25Volume: 2.282B (-6.63%)

Up Volume: 1.514B (+837.024M) Down Volume: 810.35M (-924.77M)

A/D and Hi/Lo: Advancers led 2.48 to 1Previous Session: Decliners led 2.18 to 1

The SP500 broke over the November 2008 peak, and that is a key move that it made on volume. It had a reason to do it, and it was news-driven. The question now is if it can hold that gain and add to it. It can come back and test, but it needs to hold and add onto that gain. NASDAQ, commodities, energy stocks, semiconductors were early leaders and then pulled back. Are they going to be able to pick up the slack now and add onto these other new-found leaders and give us more gains? That is the key.

We are going to look at those that have pulled back and are not going to chase those that have already moved up. We are going to look at the ones that have pulled back and see if they give us opportunity. If they start to make the break higher, and if they can close higher and the market still is positive, then we can move into those and get some more great positions and great stocks. We just have to watch and see what happens.

Yes, there can be a reversal. A lot of times on a Friday, you have a good news-driven move that takes an index to a new high, and you get reversal. That is, if the sellers are there. If they are ready to do it, they will do it. If they are not, we will have this opportunity ahead as the money out on the sidelines continues to get dragged into the stock market. The sellers took a few turns at the wheel the past week but could not push the market down. Instead those pullbacks have led to more money moving in.

On Monday we will have some more buys, and maybe take some more gain. We will just do whatever the market says because right now we are in an uptrend. We have money moving in and we will take what the market gives. Enjoy your weekend.

Support and Resistance

NASDAQ: Closed at 2000.25Resistance:2010 from the Thursday peak2015 is turning out to be near term resistance2099 is the mid-September low2169 is the March 2008 double bottom low

Support:1984 from late SeptemberThe 10 day EMA at 19781947 is the October gap down point1897 is the October post gap intraday high.1880 is the June peakThe 50 day EMA at 18651862 is the July peak1786 is the November intraday high1780 is the November 2008 closing peak1773 is the May intraday peak1770 is the mid-October interim peak1673 is the prior April peak1666 is the intraday January 2009 peak1664 is the May 2008 low1661 is the April 2009 prior peakThe January closing peak at 1653 (intraday)The 200 day SMA at 16331623 is the early April peak1620 from the early 2001 low1603 is the December peak1598 is the February 2009 peak, the last peak NASDAQ made1587 is the March 2009 high is getting put to bed again1569 is the late January 2009 peak1542 is the early October 2008 low1536 is the late November 2008 peak1521 is the late 2002 peak following the bounce off the bear market low1505 is the late October 2008 closing low.1493 is the October 2008 low & late December 2008 consolidation low

S&P 500: Closed at 1010.48Resistance:10501106 is the September 2008 low

Support:The November 2008 peak at 1006The 10 day EMA at 991956 is the June intraday peak944 is the January 2009 highThe 50 day EMA at 940935 is the January closing high932 is the July peak930 is the May peak919 is the early December peak is bending899 is the early October closing low896 is the late November 2008 peak888.70 is the April intraday high.882 is the early May low878 is the late January 2009 peakThe prior April peak at 876The 200 day SMA at 872866 is the second October 2008 low857 is the December consolidation low; cracking but not broken853 is the July 2002 low848 is the October 2008 closing low846 is the April peak842 is the early April peak839 is the early October 2008 low833 is the March 2009 peak818 is the early November 2008 low815 is the early December 2008 low805 is the low on the January 2009 selloff. KEY Level800 is the March 2003 post bottom low

Dow: Closed at 9370.07Resistance:9387 is the mid-October peak9625 is the October closing high10,365 is the late September low

Support:The 10 day EMA at 91989088 is the January 2009 peakThe 18 day EMA at 90548985 is the closing low in the mid-2003 consolidation8934 is the December closing high8878 is the June peak8829 is the late November 2008 peakThe 50 day EMA at 87358626 from December 20028588 is the May high8581 is the July peak8521 is an interim high in March 2003 after the March 2003 low8451 is the early October closing low8419 is the late December closing low in that consolidation8375 is the late January 2009 interim peak8315 is the February 2009 peak8307 is the April 2009 intraday high8221 is the May 2008 low8197 was the second October 2008 low8191 is the prior April peak8175 is the October 2008 closing low. Key level to watch.8141 is the early December lowThe early April intraday peak at 8113The early April peak at 80767965 is the mid-November 2008 interim intraday low.7932 is the March 2009 peak7909 is the early January low7882 is the early October 2008 intraday low. Key level to watch.

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.